SEBI: The Purpose, Objective and Functions of SEBI

Securities Exchange Board of India (SEBI) was set up in 1988 to regulate the functions ofsecurities market. SEBI promotes orderly and healthy development in the stock market butinitially SEBI was not able to exercise complete control over the stock market transactions.

It was left as a watch dog to observe the activities but was found ineffective in regulating andcontrolling them. As a result in May 1992, SEBI was granted legal status.

Section 3- SEBI is a body corporate having a separate legal existence and perpetual succession.

The head office of SEBI is in Mumbai

Can establish branches in different parts of country. it has branch office in Kolkata, Chennai and Delhi

Reasons for Establishment of SEBI:

With the growth in the dealings of stock markets, lot of malpractices also started in stockmarkets such as price rigging, unofficial premium on new issue, and delay in delivery of shares,violation of rules and regulations of stock exchange and listing requirements. Due to thesemalpractices the customers started losing confidence and faith in the stock exchange. Sogovernment of India decided to set up an agency or regulatory body known as SecuritiesExchange Board of India (SEBI).

Purpose and Role of SEBI:

Preamble- An Act to provide for the establishment of a Board to protect the interests of investors in securities and to promote the development of, and to regulate, the securities market and for matters connected therewith or incidental thereto.3. To prevent fraudulent and malpractices by having balance between self regulation of businessand its statutory regulations.4. To regulate and develop a code of conduct for intermediaries such as brokers, underwriters,etc.

SEBI BOARD:

Composition (.4):

a Chairman; 2 MoF 1 RBI 5 members (at least three shall be the whole-time members) appointed by the Central Government.

Qualification 4(5)- ability, integrity and standing who have shown

capacity in dealing with problems relating to securities market or

have special knowledge or experience of law, finance, economics, accountancy, administration

or in any other discipline which, in the opinion of the Central Government, shall be useful to theBoard.

Tenure (5)-

As prescribed by C.G. Can be removed- Prior notice of 3 months, proper opportunity to be heard. or three months salary and allowances in lieu of Chairman can relinquish his post SEBI (Terms and Conditions of Service of Chairman and Members) Rules, 1992- Rule 3- Chairman & wholetime members- 5 yr- can be reappointed- retirement age 65yr

Grounds of Removal (6)-

Adjudged insolvent Unsound mind Moral turpitude the opinion of the Central Government, so abused his position as to render his continuation in office detrimental to the public interest

Meetings ( 7)- both time and place

follow procedure in regard to trans. Of business

Chairman- if cannot attend, another member chosen- preside

Casting vote of chairman.

As Quasi-legislative body

Section 30- Power to make rules

Board can make rules consistent with the Act. (s.30(1))

[s. 30(2)] Can make rule in following matter: a) Meeting- time, place, procedure and quorum [SEBI (Procedure of Board Meetings) Regulations, 2001] b) Terms and conditions for service of officers and employees of the Board. [SEBI (Employees Service) Regulation, 2001]. c) Matter: relating to issue of capital, transfer of securities and other matters incidental the manner of disclosureby the companies under section 11A conditions for issue of CIS d) Certificate of registration- essential conditions, amt of fees paid, manner of suspension/ cancellation Settlement proceedings- terms and procedure. e) Any other matter

Section 31- Rules and regulations to be laid before Parliament.

Laid down before each House, while it is in session For a period of 30 days (in same session or successive session) Modifications can be made by both the Houses If any modification made, rule/regulation come in effect with that modification.

Approval of Parliament is not necessary if circulars are issued for internal work of the Board

As Quasi-executive body

Section 11B- Power to issue direction-

After making an enquiry or causing to make an enquiry, necessary for-

interest of investors, or orderly development of securities market; prevent the affairs of any intermediary or other persons- conducted in a manner detrimental to the interest of investors or securities market; secure the proper management of any such intermediary or person, May issue following directions- to any person or class of persons, or associated with the securities market to any company Also, include any person who made profit or averted loss in contravention of the provisions of this Act or regulations, to disgorge the amount equivalent.

Section 11C- Investigation-

Board ( can give order to investigate- in writing) on reasonable ground believe-

Dealt in manner detrimental to int. of investors or securities market Violated provisions of the Act/ regulation. The Investigating Authority may require any manager, intermediary or any person assoc.- produce to the Investigating Authority or any person authorised, all the books, registers, other documents and record of, which are in their custody or power. S. 11C(2)- duty of manager, S.11C(3)- power of investigating authority Investigating can keep books, register etc for 6 months. (cl. 4) Can call for copies if needed again. (cl. 4) Copies should be certified one. (cl. 4) Person directed to investigate- (cl. 5) May examine on oath Administer the oath Can require to appear personally If a person refuses to- (cl. 6) Produce books, register Furnish information required Fails to appear, when required To sign notes of any examination Punishment- o Imprisonment- 1 yr o Fine- 1cr., 5 lakh for every day Notes of examination taken down in writing (cl. 7) Seizure of books etc- (cl. 8) Application to Magistrate or Judge of such designated court On reasonable ground to believe, it may be destroyed, mutilated, altered, falsified or secreted. Investigating Authority by Judges order- (cl. 9) o To enter places where books are kept o To search such places o To seize. Judge cannot authorize seizure of books etc not allowed in case of public listed co. except in case of insider trading(cl. 9) Inv. Authority authorized to keep seized books etc. not later than the conclusion of the investigation(cl. 10) Search & seizure acc. To CrPC. (cl. 10)

As Quasi-judicial body-

Chapter VI A- Penalties & Adjudication

Penalty of 1 lakh 1 Cr., 1 lakh per day. In case of Failure to furnish information etc. ( 15A)- o Fails to furnish document, report etc o Fails to furnish info, books, documents etc and fails to file return w/I specified time o Fails to maintain books of a/cs or records. failure by any person to enter into agreement with clients as required by the Act/ regulations. ( 15B) registered co. listed as intermediary, when asked by the board to redress investors grievances and failed to do so. (15C) CIS ( including mutual funds)- (15 D) o Fails to obtain certificate of registration from board before sponsoring CIS. o Registered as CIS (including MF) and fails to comply with req. of registration. o Registered as CIS (including MF) and fails to to make an application for listing of its schemes under resp. regulation. failure to observe rules and regulations by an asset management company (15E) default in case of stock brokers (15F) contravention where no separate penalty has been provided (15HB) Penalty of 10 lakh- 25 cr./ 3 times amt of profit made insider trading. (15 G) Non-disclosure of acquisition of shares and takeovers (15 H) Penalty of 5 lakh- 25 cr./ 3 times amt of profit made fraudulent and unfair trade practices Power to Adjudicate- (15I) Officer not below the rank of a Division Chief He has power to summon and enforce the attendance of any person, to give evidence or to produce any document The Board may call for and examine the record of any proceedings (to check whether it is erroneous or not) Pass order for enhancing penalty Factors to be considered while deciding quantum of penalty-(15J) amount of disproportionate gain or unfair advantage the amount of loss caused to an investor or group of investors repetitive nature of the default Crediting sums realised by way of penalties to Consolidated Fund of India (15JI)

Powers & Functions of the Board-

Section 11- Functions-

Take measures it thinks fit for-( cl 1)

to protect the interests of investors in securities to promote the development of, to regulate the securities market Provide measures for- (cl.2) regulating the business in stock exchanges and any other securities markets registering and regulating the working of o Intermediaries1 o venture capital funds and CIS (including mutual funds) promoting and regulating SROs prohibiting fraudulent and unfair trade practices relating to securities markets promoting investors education and training of intermediaries of securities markets prohibiting insider trading regulating substantial acquisition of shares and take over of companies; calling for information, undertaking inspection, conducting inquiries and audits of- o stock exchanges, o mutual funds, o other persons associated o intermediaries o SRO o bank or any other authority o board or corporation functions and powers under the Securities Contracts (Regulation) Act, 19561 stock brokers, sub-brokers, share transfer agents, bankers to an issue, trustees of trust deeds, registrars to anissue, merchant bankers, underwriters, portfolio managers, investment advisers, Depositories and DP, custodiansof securities, foreign institutional investors, credit rating agencies and such other intermediaries as the Board may,by notification, specify in this behalf levying fees or other charges conducting research performing such other functions as may be prescribed Board may take measures to inspect books, etc of a public listed co. ( if it has reasonable ground to believe that the co. is involved in insider trading) (cl.2) Board has same powers as of Civil Court [clause (i) or clause (ia) of sub-section (2) or sub- section (2A)]- (cl.3) the discovery and production of books of account and other documents summoning and enforcing the attendance inspection of books etc. of co./ person at any place. examination of witnesses or documents Board may order following measures (either on pending or completion of investigation)- (cl.4) suspend the trading of any security retain/prohibit any person from assessing securities market suspend any office-bearer of stock exchange or SRO impound and retain the proceeds or securities in a trans. Under investigation Attach bank account(s) of any intermediary or any person associated (by the Judicial Magistrate of the first class having jurisdiction, for a period not exceeding one month) Direct any intermediary or any person not to dispose of or alienate an asset forming part of any transaction Amount disgorged, pursuant to a direction issued, under section 11B credited to the Investor Protection and Education Fund established by the Board. (cl.5)

Section 11A- Board to regulate or prohibit issue of prospectus, offer document or

advertisement soliciting money for issue of securities for protection of investors.

11AA- CIS

Any scheme which satisfies the conditions referred to in sub section (2)n (2A)] shall be a collectiveinvestment scheme:

Provided any pooling of funds under any scheme,

which is not registered with the Board or is not covered under sub section 3,

1hundred cr rupees or more shall be deemed to be a collective investment scheme

Any scheme made or offered by any person under which,

the contributions, made by the investors, is utilized for the purposes of the scheme the contribution are made to such scheme by the investors with a view to receive profits, the property, contribution or investment forming part of scheme is managed on behalf of the investors The investors do not have control over the management of the scheme. Any scheme made by any person satisfying the conditions as may be specified in accordance with the regulations made under this Act. Following will not be CIS- made by a co-operative society registered under the Co-operative Societies Act, being a contract of insurance to which the Insurance Act, 1938 providing for any Scheme, framed under the Employees Provident Fund and Miscellaneous Provisions Act, 1952 under which deposits are accepted under section 58A of the Companies Act, 1956 under which deposits are accepted by a company declared as a Nidhi or a mutual benefit society falling within the meaning of Chit fund business